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2025 Tax Sunset: What You Need to Know and How to Prepare

Tax Planning

By John Salomon, CPA, CFP®

In 2025, the sunset of several 2017 Tax Cuts and Jobs Act (TCJA) laws may bring big tax shifts for individuals and businesses. While pivotal changes like the 2025 Tax Sunset loom on the horizon, we at J2 Capital Management want to equip both current and prospective clients with insights to navigate these shifts wisely.

Here’s the scoop on what’s coming with the 2025 Tax Sunset, including key TCJA provisions set to expire, and what these changes could mean for you and your finances.

Individual Taxes

Let’s start with an explanation of how the 2025 Tax Sunset could affect individual taxpayers.

  • Lower income tax brackets: The lower tax brackets that were put in place by the Tax Cuts and Jobs Act (TCJA) will revert to pre-2017 levels. That means that millions of taxpayers could potentially be pushed into higher tax brackets.
  • Decreased standard deductions and personal exemption: By decreasing both standard deduction amounts and personal exemptions, the 2025 Tax Sunset could cause higher taxable income for individual filers.
  • Child tax credit: Currently, the child tax credit provides a dollar-for-dollar reduction of your tax liability for each qualifying child; this allowance would expire under current regulation.
  • State and local tax (SALT) deduction cap: If the current $10,000 cap on deductions for state and local taxes expires, residents in high-tax states like California, New York, and New Jersey could benefit. The downside is that eliminating the deduction cap could potentially shift the tax burden to the federal government. 

Business Taxes

Here’s a snapshot of how the 2025 Tax Sunset could impact business taxes:

  • Full expensing of deductions: This temporary condition that allows instant expensing of business expenses would expire. For affected businesses, the result would be increased taxable income.
  • Pass-through business income deductions: This tax provision allows the deduction for income from pass-through businesses like partnerships and S corporations. When this law expires, the tax liability for many small businesses could increase.
  • Bonus depreciation: Businesses that invest in equipment and machinery will be impacted when this deduction for specific depreciable property disappears.

Uncertainty

Ultimately, the consequences of the 2025 Tax Sunset are unsettled. There’s a possibility that Congress will extend or alter these tax laws before the end of 2025, but if that doesn’t happen, the above changes can take place. 

If the 2025 Tax Sunset occurs without intervention from the government, the effects on individuals and businesses will vary contingent upon their unique situations. Some taxpayers would experience an increased tax liability, while others could potentially gain from changes like the SALT deduction cap removal. Or, conversely, some businesses could face a higher tax bill if temporary deductions expire.

Based on my analysis of the returns prepared for the first year the tax cut was enacted, over 90% of all returns filed had a lower tax. If the tax cuts are not extended, most of our clients will go back to itemizing deductions instead of using the higher standard deduction. Compounding this lower deduction with the higher tax rate is a double whammy that can cause tax season sticker shock if you do not plan ahead. 

Prepare Ahead and Act Now

The smartest way to brace your finances for the 2025 Tax Sunset is to consult a savvy, experienced financial advisor. At J2 Capital Management, we dive deep into your income tax records, expenses, and how your investment choices affect both current and future tax liabilities. We can also collaborate with your tax advisor so your financial plan is optimized and sunset-proof.

Whether you’re filing solo or running a business, let’s align your finances with the upcoming changes. Schedule a meeting today with our CPA to review or reach out to us at info@j2cmonline.com or 248-641-4444.

About John Salomon

John Salomon is CFO and CCO at J2 Capital Management, a boutique financial advisory firm specializing in in-house custom financial planning, tax, estate, and investment management. John spent more than 20 years as a practicing CPA before earning the CERTIFIED FINANCIAL PLANNER™ certification and making a career pivot so he could offer more value to his clients. John specializes in providing advanced planning and tax strategies and helps clients manage risk so they can have confidence in their future. John is known for his commitment to building long-term relationships with his clients and loves getting to know them at a deeper level so he can provide personalized service that will make the most impact on their lives. John has a bachelor’s degree in accounting from Michigan State University. 

When he’s not working, you can often find John on the golf course or spending time with his wife, Michele, and their three children, Emily, Nicholas, and Aidan. To learn more about John, connect with him on LinkedIn.

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